HMRC wins £45 million in Santander subsidiary tax avoidance case
HMRC has won £45 million in a second tax avoidance case against Abbey National Treasury Services, a subsidiary of Santander.
The tribunal ruling means £45 million is now liable to taxation in addition to another £40 million in a second case that will be decided by this ruling.
The scheme included falsely reporting swaps as tax deductible losses. This particular case follows a similar victory by the HMRC in June, when it won £16 million against the same company for tax avoidance.
This involved issuing a number of shares from treasury services to Abbey National (the company’s parent at the time), which had rights entitling the latter to receive dividends of an amount equal to certain cash flows receivable from specified derivative assets.
On issuing the shares, Abbey National Treasury Services de-recognised £160 million from the accounting value of the relevant swaps and recognised a corresponding £160 millions dividends debit, which it claimed as a tax deductible loss.
The dividends were not taxable income in the hands of Abbey National. HMRC agreed the accounting treatment but disagreed that the debit fairly represented a loss.
‘This win shows that any business, irrespective of size, that promotes or uses tax avoidance schemes can expect to be challenged by HMRC,’ said HMRC director general of business tax Jim Harra.
‘Where necessary, we will take them through the courts to protect tax revenue.’
A Santander spokesperson said these transactions, and the payment of tax due, was considered appropriate under Abbey National’s interpretation of the relevant tax law at the time.
‘The litigation centred on the tax treatment the bank applied to two transactions and involved a technical debate with HMRC about the interpretation of complex legislation,’ added the Santander spokesperson.
‘This judgement was issued three weeks ago. Having reviewed the judgement in detail, we are respectful of this decision and it is not our intention to appeal.’
